On Monday, the US dollar, as represented by the greenback index (DXY), fell to 105.50 after a sequence of gains since the beginning of May, with investors looking to take advantage of earnings ahead of a turbulent future.
As far as the fiscal outlook for the United States is concerned, a mixed picture prevails with few indicators of deflation. On the other hand, Fed officials have adopted a cautious stance and have not yet started a full easing cycle. This approach, supported by the Fed, continues to create a deferral situation in line with market expectations.
Yet the technical situation shows a favorable range with signals located in the favorable zone. The Relative Energy Index (RSI) remains above 50, alternatively, it curves downwards. Transferring Moderate Convergence Divergence (MACD) helps to develop naive bars, which means that the bulls keep their bears.
Consistently, the DXY index maintains its stance above the 20, 100 and 200-day simple moving averages (SMA). Combining these conditions with hiking signals, it looks like the USA Dollar (USD) could see backup gains, especially if it holds the 20-day SMA.
Inflation measures the increase in the cost of products and a nominal basket of products and services. Headline inflation is typically expressed as a ratio change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation does not include additional risk factors such as food and fuel which may vary due to geopolitical and seasonal factors. Core inflation is the figure that economists focus on and is the limit set by central banks that can be mandated to keep inflation at a manageable level, usually around 2%.
The Shopper Worth Index (CPI) measures changes in the cost of a range of products and services over a period of year. It is generally expressed as ratio change on month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure focused on by central banks because it does not include risky food and fuel inputs. Interest rates generally increase when the core CPI rises above 2% and vice versa when it falls below 2%. Since the upper rates of interest for foreign currencies are fixed, higher inflation generally leads to a more powerful foreign currency. The second is true if inflation falls.
Despite the fact that it would seem counter-intuitive, high inflation in a country increases the value of its currency and vice versa for low inflation. This is because the central treasury will in most cases move interest rates upward to fight inflation, which are a magnet for additional international capital inflows from buyers looking for a profitable park to stash their cash.
Previously, gold used to be a buy asset in times of high inflation because it protected its value, and while buyers still buy gold for their safe-haven homes in times of last market turmoil, this is no longer the case. Lots of cases of the year. This is because when inflation peaks, central banks will publish interest rates to fight it. Higher rates of interest are unfavorable for gold because they create an opportunity cost of holding gold or depositing cash in a money store account compared to an interest-bearing asset. On the other hand, low inflation is a certainty for gold as it brings interest rates up, making the shiny metal a more viable investment complement.
This post was published on 06/24/2024 1:07 pm
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